Gold pricing power to move to Shanghai over time

The New York gold price closed Tuesday at $1,068.10 down from $1,071.70.  In Asia and London, prices were at $1,071.25 with the dollar index slightly higher at 98.18 up from 98.02. The LBMA gold price was set at $1,067.80. The euro slipped slightly to $1.0925 down from $1.0969 on Tuesday against the dollar. The gold price in the euro was set at €977.48. Ahead of New York’s opening, the gold price was trading at $1,067.35 and in the euro at €976.89.  silver price in New York closed at $13.93. Ahead of New York’s opening the silver price stood at $13.85.

Price Drivers

Monday saw no sales from the SPDR gold ETF , but sales from the Gold Trust of 0.51 of a tonne. The holdings of the SPDR gold ETF are now at 643.558 tonnes and at 153.21 tonnes in the Gold Trust. We continue to expect to see weaker prices for the rest of this week, as New York continues to set prices in line with the dollar Index and €: $ exchange rates.

With the arrival of a Yuan Gold Fix in April based on metric gold measurements, the issue of the international working of the Yuan comes into view. If by then China has ensured that there are no Capital Controls it will be easy for the gold market in Shanghai to integrate with other global gold markets. After that we expect pricing power to move to Shanghai over time, as arbitrageurs smooth out international price differences and to eventually sideline the Futures and Options market and ‘over the counter’ markets in New York and London. This will happen as the overwhelming volume of physical gold returns to set the price, forcing the derivatives markets to base their pricing on physical demand and supply.

But first, there must be no difference between the price of onshore and offshore Yuan. The variable differences between these two aspects of the Yuan are, in effect Exchange Controls where the internal Yuan is more expensive that the offshore Yuan. While the margins are far lower, the set-up harks back to systems like the U.K.’ Dollar Premium [1971-1974] and the Financial/Commercial Rand [South Africa] which controlled capital movements in and out of the countries. The presence of these controls confirms the dangers facing not just the Yuan, but the entire currency world as it moves to a multi-currency system from dollar hegemony.

We note that two banks in China have been banned from trading these two Yuans until late March 2016. Unintentionally, this gives us a signal that we may see the two Yuans become one before the start of the Yuan Gold Fix in Shanghai.

Silver The silver price is being moved by the market with $14.00 being the midpoint of the current trading range of the silver price. –

Julian D.W. Phillips for the Gold & Silver Forecasters – and

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